4 Keys To Improving Your Trading Process

In a constant effort to refine the trading and educational process in helping traders become profitable, I have put together this article which will give you five keys to improving your trading and particularly help with the learning process to becoming a successful trader.

Key #1: The Zone of Proximal Development

This is the idea that learning works best when you the trader tackle something that is just beyond your current reach, but neither too hard, nor too easy. Ideally, this is setup so you are achieving an 80% success rate at whatever you are practicing. The reason for this is when something becomes too easy, you get bored, while when something becomes too hard, you get frustrated. Neither are ideal for the learning process. Video game manufacturers invest millions in testing just to make sure the level of challenge always lies in that sweet spot - neither too easy, nor too hard.

Since we are talking about trading, getting an 80% accuracy or success rate is not easy. It takes years and hundreds, if not thousands of trades along with thousands of hours behind the charts. But what if your still in the learning process and do not have hundreds of trades or thousands of hours behind the charts? What then?

This is where higher time frames come in, such as the 1hr, 4hr and daily time frames. By starting off on these, you increase the probability of getting cleaner signals, while also not having to rush to make a decision as you would say in a 5min time frame. In the beginning, things can seem overwhelming in terms of all the information you have to process, so overburdening yourself with a task too difficult can and often is frustrating which stunts the learning process and can affect one's confidence. So this is why I recommend starting with the higher time frames as you have more time to process the information, read the price action, all while making a relaxed decision.

Statistically, I have tested now over three dozen price action patterns, systems, formations, etc., and go figure, all of them perform much better with greater accuracy on these higher time frames whereas on a 5min chart they perform no better than a coin flip. This does not mean you cannot trade them on those time frames, but they require more information, more moving parts and more things to amplify the signal. But on the higher time frames, they perform statistically better as is, which makes it easier to trade.

So to make sure you are in the Zone of Proximal Development with your trading, stick to the higher time frames to start, get your accuracy and confidence up which accelerates the learning process, then decide if you want to stay there or go to the lower time frames. But nothing is more crucial in the beginning or developing stages then this.

Key #2: Deliberate Practice

Many of you have heard me recently talk about Anders Ericsson, the famous Cognitive Psychologist (the expert on expertise) who is famous for the 10,000 hour rule. Everyone has been talking about this lately, especially in trading, but not many of you have heard about his lesser known pre-requisite to the 10,000 hr rule and to becoming an expert. This is the rule of 'Deliberate Practice'

What this describes is a constant sense of self-evaluation and consistent focus on one's weaknesses rather than playing to one's strengths. In fact, the practice of targeting your specific weaknesses is known as....The Zone of Proximal Development.

Many people have something they are really good at, perhaps doing Sudoku puzzles, playing Tetris or various cognitive exercises. But the problem is once you get really good at them, you've built up the neural connections to perform the task well so there is lesser growth in continually repeating these tasks. But where you are weakest at is where you need to spend the most time as that is where all the growth is.

The height of your success is limited by your weakest link, so first is to find out what that is. Perhaps its focus and concentration, or money management, or keeping a trading journal, or following your system. Whatever your weakest area is in trading, first find it, then spend most of your efforts trying to develop that as its most likely the one thing which is separating you from losing money/barely breaking even, to making money week in-week out.

Having a trading journal, filling this out constantly and reviewing it weekly is one way to make sure you are engaging in deliberate practice.

Key #3: Believe in the Learning Process

Did you know that having a fixed mindset neurologically affects your intelligence and neural connections? Brains of people with fixed mindsets actually act differently than those with an open mindset. If you believe you will not be able to trade successfully, then it is unlikely you will ever learn from your mistakes. But if you believe in the ability to learn how to trade successfully, that you can do this, then your brain will actually wire itself differently from the mistakes you make.

The stronger the belief in your ability to learn, the more pronounced the brain activity lends itself to more adaptive responses to mistakes, both behaviorally, but also neurally. Thus, if you really believe in the learning process, even after you have made a silly, ridiculous or just bad mistake, what will happen is your brain will produce a larger amplitude in the signals at that moment which reflects a conscious allocation of attention to mistakes.

The larger the neural signal, the better the performance. So its very critical to be relaxed and aware after you've made a mistake because how you think and feel energetically in that moment will determine how your brain and central nervous system wires itself in that moment. It is also critical to remove any limiting or unconscious beliefs as they could actually be sabotaging your learning process and how your brain wires itself when trading.

So having an open mindset, not just in trading, but in life will actually help wire your brain to build better neural connections in the learning process. Hence the great Hamlet quote and how insightful it was;

“Why then ’tis none for you; for there is nothing either good or bad, but thinking makes it so.” - Hamlet

Our beliefs and construals can actually alter our reality. What we believe can, quite literally, be what becomes true.

Key #4: Maintain a Healthy Brain

There are many ways to maintain an healthy brain, but we will limit it to 4 crucial things;

1) Get Proper Amounts of Sleep - one of the most damaging things to brain performance is not having enough sleep. It actually reduces and affects your neurotransmitters which are crucial for brain signals completing their process and sending information from brain cell to brain cell. It can also make you more emotional which is the last thing you want to be during trading.

If your tired and did not sleep properly, don't trade that day. Your likely competing against people who have slept better, or even worse, a computer which does not need sleep and will execute just as good in the 8th hour of trading as in the 1st, so make sure your properly rested and if not - don't trade. There will be another day and another trade, the market isn't going anywhere.

2) Have a Healthy Diet - drinking massive amounts of coffee overstimulates the adrenals and causes hyperactivity in the brain, which can cause increased emotional responses, too much analytical thinking and overstress the thinking process. Drinking alcohol conversely surpresses the adrenals, then while you sleep, your body being dehydrated and having lesser adrenaline, will overcompensate by producing larger amounts then normal so if you've hit the pints or bottle too much the previous night, take a day off and get your mind right for trading. It is likely dehydrated which is what actually causes the 'hangover' feeling.

Also, avoid eating wheat or sugar which affects both IQ, along with being toxic and damaging to the brain. Wheat has WGA (Wheat Germ Agglutinin) which is a neuro-toxin that passes through the blood-brain barrier, attaches itself to the myelin sheath (protective coating around neurons) which both injures the growth and affects the health of brain cells. A 2011 study actually demonstrated how Japanese schoolchildren who ate wheat everyday had a lower IQ by 4pts on average than non-wheat eaters so lay off the pan (spanish for bread).

Sugar in higher levels has been known to damage the hippocampus (region largely responsible for memory and learning). It is also considered to be as toxic, addictive and dangerous as tobacco and alcohol so lay off the krispy kreme's.

Lastly, Omega-3 fatty acids in particular have shown to be associated with improved mood and cognition. You can find a lot of Omega-3 in grass-fed meat, eggs, fish, and nuts. Another important feature of a healthy diet is protective antioxidants, which can be found in many fruits, vegetables, and green tea. Blueberries and strawberries, for example, have shown to improve memory and cognition by cleaning out toxins in the brain that cause age-related memory loss and mental decline.

So have a healthy diet to give your brain every edge it can get when trading.

3) Exercise also really helps to lubricate the brain and help keep the brain fit, healthy and strong so exercising regularly is critical to maintaining a healthy brain. It will help replenish oxygen levels to your brain along with stimulating the growth of new cells so step away from the charts at some point to get some exercise.

4) Challenge Your Brain - your brain needs exercise too and there are many ways to challenge your brain to build new connections, such as:

Learning a new hobbyReading booksYoga or MeditationUsing brain training programs such as Brain Workshop or LumosityBeing more creative, such as playing music, painting, writing, or cookingSolving puzzles, such as crosswords or SudokusPlay strategy-based video games (my favorite :-)Learning a new language

All of these will build new connections and increase your grey matter in the brain which is critical for clear thinking, being creative, having a strong working memory along with good pattern recognition (key for traders).

So there you have it. Those are 4 keys to help improve your trading process which will give you a natural edge as you learn to trade profitably.Don't forget to share your comments as I always appreciate hearing from you.

a very good article. especially pointing out that one must focus on their weakest link( after identifying it). the only thing i don t like is the emphasis on being right. the idea is to be profitable, you can make as much money being right 40 % of the time as you can being right 80 % of the time. just my opinion ( because i am me ) and no disrespect intended.

Tis a good point regarding the accuracy. Although consider if one is 40% accurate and just as profitable as the 80% accurate trader, then they are doing so by finding opportunities with larger targets or R:R ratios which likely means less of them and also a harder task for a developing trader, let alone a really good trader.

But in the beginning of one's trading career - confidence is key because one's psychology is not as robust since they have lesser experience to draw upon, so by being more accurate, this is used as a mechanism to help build confidence. Most beginning traders would have a hard time winning 4 out of 10 trades psychologically, let alone being less accurate then a coin flip, so to build the confidence and experience, i tend to learn towards more successes and wins.

Hi chris that clears it up. Philosophical difference of opinion as to what better boosts confidence I suppose. I use your buddy trading the aus USd a while back . Not many trades and a win percent around 60 with a very good track record. I don't doubt there are those who can achieve 80 percent win with 2:1 or better return but I would think they would be quite rare. You start doing the mAth on those figures and it's pretty incredible.